PAKISTAN has built foreign exchange reserves of seven billion dollars and the government is said to be keen on raising that amount to 10 to 12 billion dollars. That undoubtedly is an exceptional or historic event in a country which in recent years had under a billion dollars as the reserves.

Advice is pouring in from various non-official quarters as to how to use that increasing reserves for the good of the people and the country instead of being entranced by the reserves as they grow up.

The government on its part is exploring the means to invest some of that money abroad and earn profits. But at the moment interest rates around the world are low and bond rates are not high. The government may not be wanting to invest that money on a long-term basis.

Much of the advice is for spending these reserves on job creation in a country where there is massive unemployment, and infrastructure development which the country direly needs. The suggestions are to spend the money on education in a country in which only a third of the people are literate, to impart technical education in particular and for widespread technical training to boost industrial productivity.

Many of the suggestions are similar to the revolutionary measures taken by President Roosevelt following the Great Depression in the US of 1929 and thereafter. The period marked for the birth of the historic Tennesy Valley Administration (TVA) and famous for massive spending to provide employment.

But the problem is that unlike the America of those years, Pakistan has been suffering from an excess of inflation for the last 30 years that began with the oil price boom of 1973 and the heavy depreciation of the rupee which followed until the end of last year. Even now if the inflation is around 5 per cent, as the government claims, that is because it has hit a plateau after the steady climb of the last 30 years. The prices have stabilized at a very high level, except for the ever-rising energy and utility sectors.

And Roosevelt had no IMF to lay down the pre-conditions line by line as Pakistan has now, particularly in the area of inflation and taxation.

Apart from that, the basic question is: after educating the people and giving them technical training how do we provide suitable employment to them? The problem in the country today is not so much unemployment of the uneducated and unskilled but of the educated and technically trained. This problem has been with us for long, and has become more acute in recent times following economic stagnation and thousands of industrial units becoming sick, with new units not replacing them. I am told that for one job advertised by the State Bank of Pakistan there were 700 applicants.

As a result more and more of the educated are trying to go out of the country for employment. And that, too, is becoming difficult, particularly after September 11. The West is also facing the problem of recession in varying measures.

We certainly do not want and cannot afford to invest a big sum in educating the youth, imparting to them higher education and technical training and then lose the best of them to the West. It may take a million rupees to make a doctor or an engineer and then we gift them to the West where they work much harder than they usually do in Pakistan. Can we afford this process of deflection escalate and continue for ever while we are content with second class talent giving us a second class performance?

It has also been noticed that while the skilled or semi-skilled workers who go to the Gulf states, leaving their families behind, send their remittances home to support them the highly educated who go to the West retain their surplus earnings abroad and later get their families too there. Most of them tend to become foreign nationals as their children get educated there.

That was how we had been getting under one billion dollars home remittances until recently and the amount has doubled now owing to unfavourable conditions abroad and the campaign against Havala.

Compared to that the Philippines whose workers get far higher wages remit six to seven billion dollars to home.

What all that means is that after spending a million rupees on educating a doctor or an engineer we gift him to the West. We also lose to the West many of the students sent abroad for higher studies at Pakistan’s expense. The Ad Hoc Public Accounts Committee recently dealt with cases of a larger number of agricultural students who were sent for advanced studies but did not return home.

Dr Mahbubul Haq meant well when he strongly advocated sending more and more students abroad for higher studies and exposure to the western working styles. But as more and more chose to stay back, the results were not what he had expected but what the others had feared. Asked for the reasons why they chose to stay back, they came up with a number of complaints about working conditions here. Even some of them who were given as good a salary as those they got abroad went back, complaining of feudal working conditions here instead of the corporate style they had expected.

It is wrong to assume that high pay scales alone will attract some of the best we had lost to the West. We have to address the other complaints they have in respect of working conditions here. In the period of increasing globalization we need more and more of them to help us face the increasing challenges of globalization.

In the meanwhile instead of sending more and more of our best students abroad and losing them, we should get some of the best teachers from abroad to teach our students in our good institutions.

Along with the efforts to impart quality education and proper technical training to millions of students, we have to increase the job opportunities for them in big way. Jobs have to come through investment. But we have had little of new investment during the last seven years. But if the government’s ability to spend enough on the development sector is limited, the private sector, too, is not spending enough.

If they have the familiar high taxation, high interest rates and high cost of utility rates restraining them, along with the deteriorating law and order problem, they have in Karachi now the fear of murder of businessmen and kidnapping for ransom. And for several of the murders there is no credible explanation.

The explanation offered often is bizarre. Investment does not take place, certainly large scale investment, in an atmosphere of fear or climate of uncertainty.

Evidently the government has plenty of problems to attend to urgently, and on a sustained basis. Money has to be spent on the creation of adequate infrastructure and a more helpful tax structure. And investors should not be upset by constantly rising input costs which make nonsense of the feasibility studies on the basis of which their industries were set up. Above all, the law and order situation has to be improved greatly and sustained.

We are looking for greater market access around the world particularly in the US Europe, Canada and China. China is ready to import more from Pakistan but our goods have to be competitive in terms of prices and quality.

Right at the moment Chinese goods are flooding our markets. More and more of such goods are coming. And they are the kind of goods which can manufacture and do manufacture. But the appeal of the Chinese goods is strongest and prices are often low.

Trade and industry has to make determined efforts to improve the quality of the goods produced here and make the prices more attractive. And that has to be done on an urgent basis instead of taking too long a time in view of the steady improvement of the Chinese goods.

There is no real tie-up between official moves in the economic sector and private sector efforts. There is no long-term strategy in that direction. The need of the times is an integrated approach to solving our economic problems. Isolated efforts will not solve our mammoth problems.

In the absence of such well co-ordinated and sustained collective efforts, poverty is increasing in Pakistan. Fortytwo million out of 145 million are living below the poverty line, says the Asian Development Bank which is to give 1.1 billion dollars as aid this year out of 2.5 billion dollars by 2004-05. The Bank says 12 million people were added to the ranks of the poor in 1993-99 or the level of poverty worsened from 26 per cent of the population living below the poverty line to 32 per cent in 1999. It seems that as more aid comes in and more borrowing is done more people became poor, and eventually one-third of the people became poor as the economic situation worsened since 1999 because of the drought as well.

[This is the third and concluding part of Shahid Javed Burki’s article on globalization and Pakistan.]

WILL Pakistan’s politicians be equal to the tremendously difficult task they will assume following the elections of October 2002? Will they take the lead in modernizing the country which, during their previous tenure, slipped backwards economically, politically and socially?

Will they be able — or willing — to make Pakistan a vibrant part of the global economic and political systems? Will they succeed in restoring the faith of the people in democracy and a fully representative system of government? In sum, will they usher in a new dawn for Pakistan?

Or will the politicians fail Pakistan and its people once again? Will they continue to be myopic and look narrowly at their own interests and the interests of the people around them? Will they fail once again to develop the institutions needed for good governance? Will they be willing to be accountable to the people they profess to serve?

These are weighty, not just rhetorical, questions. What is implied here is that to give Pakistan a fresh start, the country’s political leaders need to be repentant about the past. They need to change their spots. They need to look carefully at the past, study history with some diligence and draw lessons from it. That was the main thrust of my argument in the article published on Wednesday. History, as the saying goes, tends to repeat itself unless those who are making it understand fully and dispassionately what happened in the past. Will our leaders become good students of our history?

For political leaders to succeed this time around, they must take full responsibility for three things that happened in the past. At the same time, they must commit to do three things in the future. What were their past mistakes and what should be their future commitments? Let me first look at the past.

By far the most egregious mistake on the part of the political leaders who held high offices in the past was not to develop durable institutions in the country. As the World Bank pointed out in its World Development Report, 2001, “The evolution of nations teaches that building institutions takes time and that the process within each country may stall or reverse because of political conflicts or economic and social conditions. Institution building is a cumulative process, with several changes in different areas building up to complement and support each other.” Institution building in Pakistan got stalled. The process needs to start all over again.

Pakistan had a working set of institutions when it was born. Britain had been quite diligent in ensuring that the people it governed were served by a reasonably sound institutional infrastructure. When they handed over power to Mohammad Ali Jinnah and his associates, they left Pakistan with a functioning legal system, an efficient bureaucracy, a reasonably sound administrative system, and the beginnings of a representative political structure. All this inheritance was destroyed systematically, ruthlessly and wantonly. There was a simple reason for the lack of politicians’ interest in institution building.

Institutions constrain individuals who possess power by ensuring that they follow laws, rules, and regulations. Good institutions also have the capacity to punish errant behaviour. Pakistan’s politicians, with Jinnah the only exception, did not have enough confidence in themselves and in their own base of support to subject themselves to the discipline imposed by working institutions.

Unrepentant politicians always blame the military for not allowing them the space and the time within which they could have constructed a durable institutional infrastructure. There is some substance in this belief. But the argument also cuts the other way. Each time the military intervened, it was welcomed by the people. People cheered because they felt let down by the politicians.

However, once in power, the military’s record of institution building was as poor as that of the politicians. But the military can be excused since institution building mostly occurs in response to the wishes and aspirations of the people. The military has no mechanism for gauging what the people want. That is in the domain of politics.

The second mistake the politicians committed repeatedly was the result of their pathological addiction to power. They were prepared to destroy or weaken institutions, including the judiciary, the administrative system, and the fledgling legislature, in order to keep themselves in power. The result of every general election in Pakistan’s history was contested vigorously and passionately by those who lost it. That behaviour could have been excused had the losers not worked hard to destabilize the winners, which is precisely what they did in 1977, 1983, 1988, 1990, 1993 and 1997. Even Bangladesh, with a much shorter history of nation-building and with a political rivalry no less acrimonious between its two main parties than that between PPP and PML in Pakistan, has better managed to transfer power. The third mistake made by the politicians was their failure to recognize that it is only by providing economic growth they can cultivate and retain their constituencies. They should have followed the advice given to presidential candidate Bill Clinton in 1992 by one of his political consultants. James Carville told Clinton that “it is the economy, stupid.” What really matters for the voting public are what the Americans call the wallet concerns - how secure they feel in the current economic environment. Pakistan’s political leaders failed to make this connection and, consequently, suffered repeated humiliations. Also, had they presided over a vibrant economy they would have been able to protect themselves against the military’s repeated onslaught on the political system. A bit of history will help to further this argument.

In all the four cases that saw military enter politics, politicians had allowed the economy to deteriorate. In 1969, Ayub Khan’s economic miracle had run its course and some important questions were being raised about the direction in which the economy was moving. There was concern that the fruits of economic growth were being mostly harvested by the rich, the famous but much maligned 22 families.

In 1971, the economy was in extreme distress as the civil war between East and West Pakistan was nearing its denouement. The export sector had collapsed following the break-up of the country. Unemployment had increased and prices were on the rise. In 1977, Zulfikar Ali Bhutto’s handling of the economy — in particular the irresponsible nationalization of the more vibrant parts of the private sector — had begun to take its toll. And, in 1999 the economy was in a deep crisis and Pakistan was close to bankruptcy. The GDP was growing by 3.6 per cent and per capita income was increasing at the abysmal rate of only 1.2 per cent. It would not be too fanciful to conclude that military interventions have not occurred in Pakistan during happy economic times. The Pakistani military intervened during periods of extreme economic distress.

Let us now list the three commitments the politicians must make as they return to power, albeit under the watchful eye of President Pervez Musharraf and his military associates. Two of these are linked. They must revive the economy and get it to grow again. Without growth they will not be able to deliver the basic social services demanded from the government by all citizens, rich and poor. How will growth return to Pakistan?

Here, policymakers must do two things. First, create enough fiscal space within which the government can undertake growth-supporting and poverty-alleviating programmes. Second, they must create an environment which will bring both domestic and foreign investment into the productive sectors of the economy.

Some easing of the fiscal situation has happened already as aid has begun to flow back. But it will be irresponsible to rely on foreign aid to finance government programmes that must be sustained over time. To do that the government must augment its own resources. This can be done by increasing tax revenues and by cutting non-development expenditures. Pakistan today has dozens of public sector corporations that lose a lot of money. To keep them af loat has required a great deal of money from the public exchequer. Closing down these corporations or privatizing them will save the government a great deal of money which can be put to good use.

It is going to be difficult to restore domestic and foreign investors’ confidence in Pakistan’s economy. The indifferent law and order situation in the country has scared away potential foreign investment. This is possibly the reason why the Islamic groups are committing acts of violence against foreigners. Political uncertainty is also another discouraging factor. That may end, we hope, with the next general elections and the transfer of power to an elected prime minister.

The third area in which politicians will need to put in some honest effort is institution building. The politicians should first begin with developing a robust framework within which their own accountability can be tested by the people. A start was made in this area by the interim government of 1996-97. The Musharraf administration has pledged to make its system of accountability a permanent feature of the Pakistani legal structure. The politicians should accept this approach but build on it further.

The next government will also do well to reform the civil service — a subject on which I dwelt at some length some weeks ago. It would be prudent to do this quickly and earnestly. The services the citizens expect from a government can only be provided when public affairs are in competent hands.

An independent and efficient judiciary, a legal system based on common law, a police force which is both efficient and responsive to the people’s needs are three institutional reforms that are desperately needed to improve Pakistan’s law and order situation. Without this improvement we cannot expect to see growth return to the economy.

These are just a few examples of the types of efforts the politicians will have to make once they return to power. On their success depends Pakistan’s future — perhaps its very existence. We hope that this time around they will rise to the challenge.

Concluded